The Reserve Bank of India (RBI) announced a significant 50 basis point (bps) reduction in the repo rate on June 6, 2025, bringing it to 5.5%. This marks the third consecutive rate cut this year, totaling a 100 bps reduction in 2025. Additionally, the RBI slashed the cash reserve ratio (CRR) by 100 bps to 3%, unlocking approximately ₹2.5 lakh crore in liquidity to boost credit flow and economic activity.
This unexpected move, which exceeded market expectations of a 25 bps cut, has sparked optimism in rate-sensitive sectors like banking, realty, and auto, with indices such as NIFTY Bank, NIFTY Realty, and NIFTY Auto gaining 2–3%. For borrowers, this translates to potential savings on equated monthly installments (EMIs) for home, auto, MSME, and other floating-rate retail loans.
How the Repo Rate Cut Affects Your Loans
Since October 2019, retail floating-rate loans in India are linked to external benchmarks, typically the repo rate. This means that changes in the repo rate directly impact loan interest rates, with banks passing on the benefits—fully or partially—within 3 to 6 months, depending on the loan’s interest reset cycle.
The 50 bps repo rate cut could lower interest rates on floating-rate loans by up to 0.5%, offering significant savings for borrowers. Below, we explore how this impacts home and auto loan EMIs for loan amounts of ₹15 lakh, ₹20 lakh, ₹25 lakh, and ₹30 lakh.
Savings on Home Loan EMIs
Assuming a 20-year loan tenure and an average interest rate of 8.25% before the repo rate cut, a 50 bps reduction to 7.75% can lead to substantial EMI savings. Here’s a breakdown:
|
Loan Amount (₹) |
EMI @ 8.25% (₹) |
EMI @ 7.75% (₹) |
Annual Savings (₹) |
|---|---|---|---|
|
15 lakh |
12,797 |
12,340 |
5,484 |
|
20 lakh |
17,063 |
16,453 |
7,320 |
|
25 lakh |
21,329 |
20,566 |
9,156 |
|
30 lakh |
25,595 |
24,680 |
10,980 |
Note: EMI calculations assume a 20-year tenure and a full 50 bps rate cut passed on by banks.
Savings on Auto Loan EMIs
Auto loans typically have shorter tenures, often 5–7 years. For a 7-year auto loan with an interest rate of 8.25% reduced to 7.75%, the savings are as follows:
|
Loan Amount (₹) |
EMI @ 8.25% (₹) |
EMI @ 7.75% (₹) |
Annual Savings (₹) |
|---|---|---|---|
|
15 lakh |
25,071 |
24,680 |
4,692 |
|
20 lakh |
33,428 |
32,907 |
6,252 |
|
25 lakh |
41,785 |
41,133 |
7,824 |
|
30 lakh |
50,142 |
49,360 |
9,384 |
Note: EMI calculations assume a 7-year tenure and a full 50 bps rate cut passed on by banks.
Why This Matters for Borrowers
-
Home Loans: For a ₹30 lakh home loan, borrowers could save nearly ₹11,000 annually, easing financial burdens and freeing up funds for other expenses.
-
Auto Loans: A ₹25 lakh auto loan could see annual savings of over ₹7,800, making vehicle ownership more affordable.
-
Faster Transmission: Experts suggest that banks may pass on the rate cut benefits quicker than in previous cycles, potentially within 3–6 months.
-
Broader Impact: The CRR cut will enhance liquidity, encouraging banks to lend more to productive sectors, which could further stimulate economic growth.
What to Expect Moving Forward
While the repo rate cut is a boon for borrowers, the RBI has signaled limited room for further reductions due to growth projections of 6.5% and inflation forecasts of 3.7% for FY25 and above 4% for FY26. Borrowers should:
-
Monitor their loan’s interest reset cycle to understand when savings will reflect in EMIs.
-
Consult with their banks to confirm the extent of the rate cut pass-through.
-
Stay informed about economic indicators, as future RBI decisions will be data-driven.
Conclusion
The RBI’s 50 bps repo rate cut to 5.5% and the 100 bps CRR reduction are set to lower borrowing costs and boost credit availability across India. For home and auto loan borrowers, this translates to significant EMI savings—up to ₹10,980 per year for a ₹30 lakh home loan and ₹9,384 for a ₹30 lakh auto loan. As banks begin to pass on these benefits, now is an opportune time for borrowers to review their loan terms and capitalize on the RBI’s growth-oriented measures.
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